Ericsson saw its net loss swell to SEK 35 billion in 2017 as the company wrote down assets and took charges for widescale lay-offs and restructuring. However, the company maintained its annual dividend at SEK 1 per share and said it expects a smaller contraction in the network equipment market this year as it benefits from cost reductions. It also agreed to sell part of its media business.
The impairment and restructuring charges, flagged earlier by Ericsson, resulted in a net loss of SEK 18.9 billion in the fourth quarter, compared to a loss of SEK 1.6 billion a year earlier. Adjusted operating profit was still slightly positive, at SEK 0.4 billion, down from SEK 4.4 billion a year ago. Ericsson said it shed 10,000 jobs in the quarter and reduced costs by SEK 6 billion on an annual basis. It targets a cost reduction of SEK 10 billion by mid-2018.
Following good collections and inventory reductions, free cash flow in Q4 jumped to SEK 10.1 billion, leading to a full-year number of SEK 5.1 billion.
Quarterly revenues still fell 12 percent to SEK 57.2 billion, in line with the group's outlook for a slowdown in the Chinese LTE market. On an organic and comparable basis, revenues fell 7 percent. Ericsson said the Networks division had a stable performance with improved gross margin, while Digital Services had another challenging quarter with significant losses, mainly due to higher costs in ongoing large transformation projects.
The company has identified 45 critical or non-strategic customer contracts in services, and the plan is to complete or exit approximately half of these contracts in 2018. This should lead to positive effects on the gross margin in the second half of 2018, Ericsson said. The group has already completed 23 of the 42 under-performing contracts identified in Managed Services, resulting in an annualized profit improvement of SEK 0.5 billion.
For the Media Solutions portfolio, reported in segment Other, Ericsson said it significantly improved operating performance during the year, while conducting a strategic review of the business. The result is a decision to sell 51 percent of Media Solutions to One Equity Partners to help further develop the activities. The sale will not include Red Bee Media (former Broadcast and Media Services) as the bids received did not reflect the value of the business, Ericsson said. It will be developed as an independent entity within Ericsson, building on the improved operations.
For 2018, Ericsson expects the radio access network (RAN) equipment market to decline by 2 percent, compared with an estimated 8 percent fall in 2017. The Chinese market is expected to continue to decline due to reduced LTE investments, while there is positive momentum in North America. Restructuring charges for 2018 are estimated at another SEK 5-7 billion.
New emerging business area
Ericsson also announced plans to set up a new business area called Emerging Business, to increase focus on innovation and new business development. The division will have an initial focus on IoT and distributed cloud solutions and over time identify, nurture and scale new businesses to support customers to capture the potential of 5G and IoT, the company said.
The new division will be headed by Asa Tamsons, who joins the company as Senior Vice President from 01 April and member of Ericsson’s Executive Team. She comes from McKinsey & Company, where she was a partner in the Stockholm office, focused on growth strategy, marketing and sales, high tech, and telecommunications, across Europe, the US and Latin America. She has also been based in McKinsey’s San Francisco and Sao Paulo offices.
The company is also simplifying its group function structure, from six functions to four. The majority of the Group Function Technology & Emerging Business, including hosted group responsibilities such as the CTO office and Ericsson Research, will form part of the new business area Emerging Business. At the same time, the Group Functions Marketing & Communications and Sustainability & Public Affairs will be merged into a new Group Function Marketing & Corporate Relations, headed by Helena Norrman, currently head of marketing and communications.
